Why Build a Productized Service (Instead of Software)?

When you’re plotting your way out of freelancing or a job into something more scalable, it’s common to think there’s only one clear path: Build software.

Afterall, that’s what 37 Signals (Basecamp) did, along with so many other web workers turned successful product business owners. With the abundance of these types of “success stories”, there’s no wonder so many of us immediately turn to software as our ticket out of working by the hour.

But what we don’t hear enough of are the stories of all those founders who invested years, working (for nothing) on a software idea (or two) that didn’t pan out. I certainly have a few of those.

That’s not to say making the leap from client work into a SaaS is impossible. You won’t hear me say it’s not a path worth pursuing when the time is right.

But what I am saying is this: If what you’re after right now is something more scalable than billable hours or full-time employment, then you’ve got options.

One of those options is a Productized Service. And it might just be the best opportunity you’ve got, simply because so many others in your position are overlooking it.

Productized Service?

Yeah. You know, a value-added, systemized, “done-for-you” service, packaged neatly as a product with a defined scope and price.

A productized service thrives when it’s tightly focused on delivering one specific service exceptionally well. It also adds value in unique ways that neither a piece of software nor a freelancer is able to provide.

5 Reasons to Build a Productized Service Instead of Software

Done For You

Software is “Do It Yourself”. A piece of software is nothing more than a tool that the customer can use to accomplish a task themselves. No matter how intuitive the UI is, software alone doesn’t remove the customer’s time from the equation. If they want the results the software promises, then they must be willing to put in the time to do it themselves (using the software).

A Productized Service is “done for you”. In other words, it’s a faster, and often more effective way to give the customer the result they want. The customer doesn’t need to invest any of their own time, nor do they need to learn any new skills or techniques or software. This aspect alone adds significant value to the equation.

Check out what Freedom Podcasting is doing. Their customers want to a specific result:  A successful podcast.  So what the team at Freedom Podcasting does is they handle all of the legwork for them – Audio editing, publishing episodes, podcast artwork, directory submission, and more — Just about everything except for speaking into the mics and hitting record!

Low Cancellations

One of the biggest challenges most Software as a Service (SaaS) companies face is a high cancellation rate, a.k.a. churn rate.

The customer’s experience with a SaaS typically goes something like this: The software proves valuable for a short period of time, usually between 1-3 months. But after that, the customer reaches a critical point where one of several things happens:

  • They realize they’re not using the software as much they thought they would when they signed up (perhaps due to lack of time), so they cancel.
  • Or they come across a better solution (cheaper or more effective or both), so they cancel and switch.
  • Or (hopefully) they’ll become increasingly engaged in the software and remain subscribed for a long time to come.

It’s very very difficult for most SaaS products to achieve that 3rd outcome the majority of the time. Solving the churn problem becomes their biggest hurdle.

A Productized Service, on the other hand, has a much easier time combatting cancellations. Why? Because the most common reasons for cancellation are removed from the picture.

  • Customer doesn’t have the time to do it themselves. A Productized Service does the work for them.
  • The results don’t live up to the promise. A Productized Service takes a hands-on approach, delivered by experts who ensure this doesn’t happen.
  • The UI or workflow is too confusing. A Productized Service isn’t reliant on a UI to be effective.

My productized service, Restaurant Engine, has benefitted from a near-zero cancellation rate. That’s mainly because we personally design and setup every new customer’s website, ensuring it looks amazing and meets every one of their needs perfectly. And as a productized, streamlined service, we run this process for multiple customers every week.

Pre-Validated Idea

I don’t believe that the market for a product is truly “validated” until it has multiple paying customers.

During the planning stages of a new product launch, you can do some “soft validation” stuff like collecting emails on a landing page, or pre-selling a product before it’s built. But even pre-selling can’t guarantee customers will realize the value over the long term (and not cancel).

A productized service is often created out of a service that you’ve delivered before as a freelancer or at a previous job. That means you’ve already seen first hand that clients/companies have been willing to pay for such a solution. This gives you a strong sense of validation right from the start, as you begin the work of productizing that service.  I call this a Pre-Validated idea.

When I started Restaurant Engine, it wasn’t a question whether or not restaurants needed website design and are willing to pay for it.  In fact, I had previously had a few restaurants as clients when I was a freelance web designer. But even if I hadn’t, it’s doesn’t take a leap of faith to assume that small businesses like restaurants need a relatively low-cost way to get a professionally designed website.  Since I started with a pre-validated idea, I could move forward with with the work of figuring out how to streamline, sell, and scale up such a service.

Revenue comes easier and faster

When you’re bootstrapping your transition out of client work or a nine-to-five, you’re perpetually racing against the clock. How long can you go until you run out of savings to keep your bills paid during your transition?

A productized service helps you sustain your runway longer by getting your first customer revenue in the door faster and easier.

As a value-added, “Done For You” service — often targeted at businesses — you can charge a higher price.  You can often require first payment up-front, rather than rely on free trials to convert leads to customers.  You don’t need thousands of customers in order for the business to be profitable.  A typical productized service only requires a handful of paying customers on a monthly retainer to be sustainable.

You also don’t need to spend months developing software before the product can “ship”.  A productized service can launch in a matter of days to paying customers, then iterate and refine over time.

With your early revenue from those first paying customers, your runway is extended.  Now you can continue to push forward, scaling up your operation and increasing bandwidth. Compare that to bootstrapping a software product on the side, which often requires a number of periods where you must pause to take a client project just to keep the lights on.

Most Are Overlooking Productized Services

Finally, here’s the reason why building a productized service is the perfect opportunity if you’re bootstrapping:  Most others in your situation are overlooking it.

While the rest are chasing after the shiny SaaS ideas or throwing iOS apps at the wall to see what sticks, you can be signing up paying customers with nothing more than a landing page.  While the rest avoid doing anything manually “because it doesn’t scale”, you can capitalize on that opportunity.

The opportunity is systems.  Most of your peers aren’t interested in systems, procedures, and streamlining operations.  But to you, the productized service business owner, systems are the key.  They’re what will allow you to turn a manual, hands-on, value-added service into a product that can be run with or without you.  That could mean streamlining certain procedures, hiring key team members, utilizing 3rd party tools, or eventually building out your own software to make your process even faster.

Bonus:  The Best Way to Learn

And here’s a bonus 6th reason why a productized service is a better opportunity than building software:  It’s a fantastic way to learn.  The founders that never stop learning are the ones who go the farthest.

On the product-level, you have a more intimate relationship with every customer, so you’ll learn and refine your value proposition faster than you would with impersonal software.  And when  your processes are largely delivered manually, you learn where the friction points are, making it easier to streamline and automate.

But at a high-level, building a productized service is your opportunity to learn what it means to go from being a freelancer to being a business owner.  You’re learning to work on the business instead of in the business.  That means focusing on processes, building a team, creating value.

  • Aversion to non-scaling activities is fine if based off the specific situational need of the customer but as a blanket objective it leaves much to be desired in my humble opinion.

    I’d venture a guess that customers, rarely if ever, care if about scale. They want to be treated like the center of the universe by someone they are paying. Not like they’re a number.

    I’d offer the 7th: It starts with the customer.

    My mistakes of the past 8 or so years, taught me to start with a customer with a problem they value a solution for and then solve the problem.

    Give the customer easy access to the solution.

    Always close a sale on value (never on price)

    And Educate to spread the word.

    Part came from my past, part from my reading you, part from my reading Greg Ciotti, and part from my reading Copyblogger.

    • Great points Jason. And yes, the “machinery” shouldn’t be visible to the customer. In their view, they should be the center of the universe. If anything, they should ask you how is it possible you’re able to provide such a service so quickly or at such a good price (we’ve been asked this a lot at RE).

    • Agreed! Especially if you’re offering a productized service, the customer goals and objectives still must be met. Which means a chance for up selling additional products/services in this proposed business model.

  • Your post is spot on, Brian. We have found this approach to be successful for us as well. This is exactly what we are doing at The White Label Agency http://www.thewhitelabelagency.com. We are building a scalable business of providing outsourced WordPress website development services in “product-ized” fashion. Our “basic fully responsive development” package includes fully responsive development on Bootstrap or Foundation with two templates, 10-12 pages, etc. for $560. Want to add a custom post type with custom fields and custom single.php and custom archive.php? No problem – that’s $140 more. Need Woocommerce? No problem – $700. Etc. We are staying very tightly focused and almost creating a menu of selections within the WordPress genre. The latest thing we are working on is creating customer profiles so that we can better keep track of all of the “defaults” our customers like to use … is he a Gravity Forms guy or a CF7 guy? Do they like Bootstrap or Foundation? That way no matter which developer gets assigned the project we know who we are working for and what they expect. It is an ever evolving, continuously improving approach.

    • Thanks Allan – what you’re doing at White Label Agency is truly impressive. Like you said, simply putting a price tag on each item is great because it removes “haggling” from the equation.

      • Thanks, Brian! Putting a price tag on the “product-ized” service forced us to define what was included in the offering and what wasn’t. It allowed us to define it on our website (www.thewhitelabelagency.com/rate-price), in our proposals, etc. We are refining it all of the time.

        The other thing we are doing (because our CEO is an industrial engineer at heart) is we are tracking every project to compare quoted hours versus actual hours so we can understand how well each project is fitting into our “product-ized” definitions. An example is the difference in effort required when a designer provides all of the fully responsive views in a very specific format versus just allowing our developer to work from the full screen view and make the fully responsive views work based upon the 12-column grid layout and a common sense approach to laying out the responsiveness. If we have to hit a very specific, pixel-perfect layout for the responsive views, we now add 4 hours (or $140) to our price point. So, a basic site would be $700 instead of $560 and the logical approach makes it really easy for customers to understand.

  • Nice one Brian. I’ve been naturally heading down this path, but it’s great to see its value recognised by another who’s already successfully implemented these ideas.

    • Awesome David, ya I see more and more folks going this way these days, but it doesn’t get as much attention as (I think) it should.

  • Good timing on your article! Working on rolling out a productized service offering for SEO and customer engagement activities. Thanks for posting!

  • Marcin

    Interesting article Brian. Btw, quick question – do you use a specific plugin/software for the two step opt-in? It doesn’t look like LeadPages, is it custom-built? Thanks.

    • Thanks Marcin. Yes it is custom-built. I like leadpages, and I tried it briefly, but decided to go custom because I like having full control over the design details.

      I built the popup using the JS that’s packaged with Twitter Bootstrap.

      The form is powered by Gravity Forms. That is integrated with my Mailchimp account using GF’s Mailchimp add-on (note: I’m switching to getdrip.com very soon, with the same integration).

      Yes, it’s a 2-step opt-in. Subscribers must click the link in the email to confirm before they’re added to my list.

      Cheers,

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  • Thanks Brian. A lot of this makes a whole lot of sense. We’ve built our entire business (for the most part) using productized services, and we see lots of companies just like ours cropping up every day.

    We were one of the first in the space to offer WordPress support and site management on a month to month basis, and now with a lot of publicly available tools for automation, a number of people are jumping in for the “easy money”.

    In a lot of ways I think people are naive to some of the challenges that come with trying to productize a service.

    For us, getting pricing right has been incredibly difficult. We took the automation to a level where we allowed people to purchase a service through a checkout. It was a mistake and something we’re shutting down soon.

    Mainly because something like a hosting migration has so many variables, that no matter how clearly we define the scope of our service, there are almost always outliers, and it almost feels like the people who purchase through the checkout are folks who have been quoted much higher prices elsewhere and our taking advantage of the flat fee.

    Once they’ve made a payment it’s almost impossible to go back and say “oh, by the way, this really should have cost $500, not $300” without looking like total jerks.

    So I guess I’d just warn people about pricing productized services. If you don’t have control over most of the variables involved in pricing, you can really shoot yourself in the foot.

    Great post.

    • Hey – thanks for sharing this. Great points.

      Pricing is definitely tricky, especially in the WordPress development/services space because that market is all over the map.

      My RE service isn’t the same as what you do… but I found the solution to the variables problem has been to limit the options, and be willing to say “no” a lot more often than I used to as a freelance consultant.

      Or – if we get lots of requests for a particular “extra” service, and it would add value to our offering, I’d consider offering it as an optional “add-on” that they can purchase.

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  • Brian, thank you for teaching me this new term. I had a feeling I’ve seen it described in other places, but never with this taxonomy. However, the part I’m still confused about automation is that early in the post you mentioned that you and your team personally handle setting up the small businesses’ websites for Restaurant Engine:

    “…we personally design and setup every new customer’s website, ensuring it looks amazing and meets every one of their needs perfectly. And as a productized, streamlined service, we run this process for multiple customers every week.”

    It confuses me as it seems like a conflicting statement.

    • Hey Said – Thanks for the comment.

      Ya, when I say “automation” I suppose I’m taking somewhat of a loose definition there. I mean that from your perspective as the founder, tasks that you once did yourself are now getting done (manually by others), automatically, according to the systems you’ve put in place.

      The point is that you don’t have to invest in building software to automate and scale a business. You can systematize manual tasks, delegate, and focus on providing value.

      *Brian Casel*
      casjam.com

      • Thanks, I read another of your posts that mentioned the process of Restaurant Engine in greater detail and it cleared things up.

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  • Ashit Vora

    Thanks for sharing this, Brian.
    I work as a freelancer and develop software from scratch. All clients are different and their requirements are different as well.

    I do not see any pattern that I can extract out and convert into a productized service.

    What do you recommend?

    • It can be tough for developers since you’re capable of doing so many things, so it’s really a matter of picking <20% of what you normally do and targeting a specific problem to solve. Whether that's dev ops for rails apps, specs for MVPs, payment processing optimization, you name it… Whichever industry / space / community that you happen to know more than the average person about is a good place to start.

      • Ashit Vora

        Thanks Brian 🙂

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  • This makes a ton of sense. The only way to run a productized service is to automate repeatable workflows between people – and Tallyfy is a perfect platform for it.